[KOL Analysis]Oil Producers May Face Bankruptcy Wave with Oil Cheaper than Water-Jasper Lo

Continued speculation that the pandemic is nearing the peak has continued to fuel optimism into US financial market.Thanks to prospects that United States will soon lift lockdown measures and produce drugs to effectively control the coronavirus pandemic, Nasdaq was up by 6% throughout the week, registering the largest double-week gain since 2001. On the other hand, extreme pessimism continues to loom the forex and oil markets, while a crisis similar to the Asian financial turmoil of 1997-98 is quietly brewing and threatens to hit emerging market currencies.

While Trump said last week that the United States would lift restrictions in phases, Japan expanded state of emergency to the whole country, and the United Kingdom also announced an extension of the blockade measures for three weeks, reflecting that the global pandemic has yet to be controlled. There is also news that Remdesivir, the drug produced and tested by pharmaceutical company Gilead, has a positive effect in treating coronavirus patients, boosting the company's stock price by 10%.

The Dow component Boeings share also soared 15% after the company announced plans to restart aircraft production in Washington State. But the foreign exchange market and the oil market have been sluggish amid the good news, with some emerging market countries seeing devastating crash of oil price and their national currencies.

Emerging market currencies in sell-off and ZAR has fallen 26% this year.

Some emerging market currencies have continued to record new lows, such as the Indian rupee, the Argentine peso, the Mexican peso, the Brazilian real and the South African rand, while the Turkish lira is approaching historical lows. The South African rand has fallen by 26% year to date, seeing the largest decline among all currencies. The Brazilian real has fallen by 23%, the Mexican peso has fallen by 21%, and the Russian ruble has fallen by 16.5%. The above data reflects that the currencies of emerging market countries and oil-producing countries are in a sell-off wave, facing the crisis of sharp depreciation.

When Soros targeted the Thai central bank and attacked the Thai baht in early 1997, Hong Kong people, indulged in the enthusiasm of the reunification with Mainland, continued to speculate in stock and property markets and ignored signs of the fierce currency battle between Soros and Thailand. Later the baht‘s crash triggered an unprecedented tsunami in Asian financial market. So the sell-off in currencies of emerging markets and oil-producing countries may be a signal that a financial storm is looming large in these emerging markets. This explains why the US dollar index remains strong despite US stocks’ rally last week.

Therefore, if the emerging markets are unfortunately hit by the financial crisis domino effect in the future, there will be another round of dollar shortage and liquidity shortage, which will boost the exchange rate of the US dollar and keep non-US currencies under pressure.

A financial crisis is brewing in emerging markets and non-dollar currencies remains under pressure

In addition to the forex market, the oil market has also suffered a heavy blow as the worst among most affected sectors. From the beginning of the year to last Friday, closing price of WTI futures at New York Mercantile Exchange have plummeted by 70.19%, which is definitely a disaster. A barrel of oil is approximately 159 liters. Taking WTI crude‘s lowest price of US$17.31/barrel last Friday, that’s 0.84 Hong Kong dollars per liter of oil, suggesting that the price of oil fell to a much cheaper level than water.

Therefore, at this stage, there are extremely extreme contradictions in the financial market. The US stock market rebounded amid optimism that the global pandemic has peaked, but at the same time, WTI crude has suffered pressures from the economic fallout and possibility of a recession. Some foreign banks observe that WTI will bottom out at around US$10, I personally think that there is very little room for oil price to plunge further.

Oil prices unlikely to return to the US$30 level in the short term

Unlevered ETF will be a good choice for bottom buyers

While opinions still vary as to whether oil prices have hit the bottom, one thing sure is that whether oil prices bottom out now or continue to drop to the forecast US$10 level, prices wont return to US$30 in the short term even after bottoming out, which will definitely be a big problem for oil companies. Most oil companies, probably except for those in Russia and the Middle East, will be losing money if the prices remain below US$30. Oil companies in North and South America, Europe and Asia may fall into financial difficulties and then face the crisis of bankruptcy. I estimate that in the future, the collapse of oil companies will repeat the collapse of investment banks in the 2008 financial crisis, and eventually off a financial tsunami.

I also cited the above example during one of the shows-the subprime mortgage crisis broke out in the first quarter of 2007, butLehman Brothers didnt go bankrupt immediately in the second quarter of 2007, they collapsed in September of the following year. So I believe that the Great Depression 2.0 derived from the coronavirus pandemic will eventually trigger emerging market crisis, sovereign debt crisis and the collapse of large companies in different sectors, especially energy companies, starting from the second half of 2020. For bottom buyers counting on a rally of oil prices, Unlevered ETF will be a good choice.

Jasper Lo - Video

https://news.mingpao.com/ins/%e7%b6%93%e6%bf%9f/article/20200421/s00002/1587443402403

Author：Jasper Lo

Profile:Since 1987, Jasper Lo has been engaged in the financial industry (forex, futures and gold) for more than 32 years and holds forex R.O., securities and futures broker licenses. Mr Lo is an expert in trading forex, precious metals and commodity futures and an basic and technical analyst.

Over the years, Mr Lo won many individual and team sales champion awards, as well as outstanding employee awards. He was invited, as a guest mentor, to the University of Hong Kong, Guangdong Ocean University and Guangzhou Jinan University. And he was also appointed as the chief training consultant by Hantang Securities and Dongguan Securities in China.

Mr Los experience as guest of honor invited by media including Chinese and English newspapers and columnist:

-Guest of honor invited by TVB New Channels such as Finance Channel, Forex Focus, Global Watch

-Guest of honor invited by Now Finance Channel - Forex Reports

-Guest of honor invited by i-CABLE Finance Info Channel - Forex Opportunities

-Guest of honor invited by ViuTV - Investor Smarter Group

-Columnist of Finance and Forex Market of Ming Pao

-Presenter of Finance and Forex Forecast of Ming Pao

-Presenter of Investment 36 Stratagem and Technical Analysis in 1 Min of Ming Bao Finance

-Appointed lecturer of Ming Pao Investment Seminar and Paid Course

-Author of the best seller Investment 36 Stratagem

-Columnist of Forex Expert, Forex Analyst, Marathon Weekly of ET Net

-Guest of honor of Open Good Morning of ET Net

-Guest of honor of Metro Finance Channel - Market Opening, Instant Market Fighting, Guangdong-Hong Kong Finance, Finances Power, Market Analysis

-Guest of honor of New Era of Investment of RTHK

-Columnist of Capital Commodities of Capital Weekly

-Guest Presenter of Wang Guanyi Online Finance Channel - Fund and Commercial Bond

-Columnist of Wealthub Finance and Investment Smart Platform of Enrich Culture

-Guest presenter of Weekly Investment in the World of Enrich Culture

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